Oil gushing into the Gulf of Mexico reminds us of the vulnerability confronting even the most sophisticated of production systems to extreme events. It's unlikely that any upstream oil producer and system integrator is more competent than BP in doing what it does best and in managing the associated risks. But here's a case where the firm's core competency nevertheless left it vulnerable to an industrial accident and massive financial losses, in the process creating large external costs for the environment and a significant swath of society. It's far too early to begin a forensic discussion of the BP disaster or come up with sensible solutions for the future.

The derivatives rules in the Senate financial
reform bill pose a serious threat to the
financial system because they leave
critical institutions - including but not
limited to derivatives clearinghouses - without
a lender of last resort. A major feature of the
legislation prohibits any "swaps entity" from
receiving federal assistance such as deposit
insurance or access to the Federal Reserve's
lending facilities. The bill will force banks to
spin off their derivatives activities into
separate corporate entities. Yet, sweeping the
risks inherent in derivatives trading off bank
balance sheets does not make them disappear.

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The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).